Gov’ts urged to be cautious about privatization of airports

SYDNEY – Worldwide, about 14% of airports, handling 40% of global traffic, have been privatized.

But “Airlines have not yet experienced an airport privatization that has fully lived up to its promised benefits over the long term,” revealed International Air Transport Association (IATA) Director General and CEO Alexandre de Juniac in yesterday’s 74th Annual General Meeting (AGM).

“Selling airport assets for a short-term cash injection to the treasury is a mistake,” he stressed. “Airports are critical infrastructure. It is important that governments take a long-term view focusing on solutions that will deliver the best economic and social benefits.”

Hence, IATA urged governments to take a cautious approach with airport privatization and prioritize long-term economic and social benefits of an effective airport over the short-term financial gains of a poorly thought-out privatized one.

“We are in an infrastructure crisis. Cash-strapped governments are looking to the private sector to help develop much needed airport capacity,” according to the CEO. “But it is wrong to assume that the private sector has all the answers.”

Private sector airports are more expensive, IATA research showed. “But we could not see any gains in efficiency or levels of investment. This runs counter to the experience of airline privatization where enhanced competition resulted in lower pricing to consumers.”

“We don’t accept that airport privatization must lead to higher costs. Airports have significant market power. Effective regulation is critical to avoiding its abuse — particularly when run for profit by private sector interests,” De Juniac underscored, citing that five of the top six passenger ranked airports by Skytrax are in public hands.

For these reasons, IATA member airlines resolved to urge governments considering airport privatization to focus on the long-term economic and social benefits of an effective airport, learn from positive experiences with corporatization, new financing models and alternative ways of tapping private sector participation.

They also pressed for more informed decisions on ownership and operating models to best protect consumer interests, as well as locking-in the benefits of competitive airport infrastructure with rigorous regulation.

“There is no one-size-fits-all solution,” De Juniac conceded.

“A broad range of ownership operating models exist that can meet a government’s strategic objectives without a transfer of control or ownership to the private sector. Globally, many of the most successful airports are operated as corporatized entities of governments. Governments need to evaluate the pros and cons of different models taking into account interests of all stakeholders, including airlines and customers.”

“The most important thing is that airports meet the needs of customers and airport infrastructure users, at a fair price. And to do that, user consultation must be an integral part of the consideration process,” he emphasized.

Hence, governments must protect consumer interests by establishing robust regulatory safeguards to ensure cost efficiency in charges and improvements in investments and service levels.

They should also set expectations for performance improvement in consultation with airport users and the consumers and periodically monitor airport privatization through public consultation, with corrective action taken to ensure benefits are realized for the passengers, for airlines and for cargo consumers.

“Efficient and economical air transport contributes directly to a community’s prosperity. Poorly thought-out airport privatizations put this at risk. The balancing role of effective and strong economic regulation is essential,” De Juniac concluded.